Analyzing the Retail Stock Bubble

NEW YORK ( TheStreet) -- Well-known retail and consumer-related stocks have become bubbles. Some of them have already popped. Others have yet to do so.

Nine of the twelve stocks I am profiling today are in the retail-wholesale sector, which is 13.3% overvalued, according to www.ValuEngine.com. Two are in the consumer-staples sector, which is 13.1% overvalued. The twelfth stock is in the consumer-discretionary sector, which is 3.3% overvalued.

Eight of the 12 stocks are overvalued and remain risky investments. They went from being value stocks at their 2011 lows to MOJO plays as they rose toward their 2012 highs, where they became bubble stocks.

All 12 stocks have had tremendous price gains going into 2012. Four saw their bubble burst from April through July, while three peaked in reaction to the Federal Reserve policy announcement of QE3 on Sept. 12. Five set highs between Oct. 5 and Oct. 16.

Having bubble stocks in retail is not justified by consumer confidence readings. Although the latest reading of 70.3 marks an improvement, it is well below the 90 to 110 range that is considered neutral. A positive trend in confidence requires readings of more than 110. Confidence has not been greater than 110 since 2007.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage, according to ValuEngine.

VE Rating: A "1-Engine" rating is a strong sell, a "2-Engine" rating is a sell, a "3-Engine" rating is a hold, a "4-Engine" rating is a buy and a "5-Engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast One-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Price-to-earnings ratios appear elevated.

Value Level is the price at which to enter a good-'til-cancelled limit order to buy on weakness. The letters mean: W-Weekly; M-Monthly; Q-Quarterly; S-Semiannual; and A-Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level is the price at which to enter a GTC limit order to sell on strength.

Amazon.com ( AMZN) ($243.94) set an all-time high at $264.11 on Sept. 14 and is above its 200-day simple moving average (SMA) at $214.87. The weekly chart shifts to negative on a close this week below the five-week modified moving average (MMA) at $248.06 with the 200-week SMA at $156.33. A negative weekly chart is a sign of a bubble popping. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Costco Wholesale ( COST) ($97.00) set an all-time high at $104.43 on Oct. 10 in reacting to its earnings report. The stock is above its 200-day SMA at $90.57. The weekly chart shifts to negative on a close this week below the five-week MMA at $98.63 with the 200-week SMA at $69.04. A negative weekly chart is a sign of a bubble popping. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Dollar General ( DG) ($243.94) set an all-time high at $56.04 on July 7 and is above its 200-day SMA at $47.87. The weekly chart is negative with its five-week MMA at $50.82. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Dollar Tree ( DLTR) ($40.52) set an all-time high at $56.81 on June 20. This bubble has popped with the stock below its 200-day SMA at $48.19. The weekly chart stays negative on a close this week below the five-week MMA at $45.90 with the 200-week SMA at $28.34. Investors and traders should sell strength to the semiannual pivot at $43.02.

Family Dollar ( FDO) ($68.524) set an all-time high at $74.73 on June 14. This bubble popped as the stock fell to a test of its 200-day SMA at $61.95, and has since has a pattern of trying to reinflate the bubble. The 200-day SMA is now $63.27. The weekly chart has been positive since the week of Sept 28 with the five-week MMA at $66.39 with the 200-week SMA at $45.42. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Home Depot ( HD) ($60.86) set an all-time high at $63.20 on Oct. 5 and is well above its 200-day SMA at $51.32. The weekly chart remains in bubble territory with overbought MOJO and the five-week MMA at $59.15 and the 200-week SMA at $35.15. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Lowe's Companies ( LOW) ($32.35) traded to a bubble high at $32.29 April 16, which popped to a 2012 low at $24.76 on Aug 2. Then the bubble reinflated to an all-time high at $32.63 on Oct 16. The stock at its low was below its 200-day SMA and is now above it at $28.43. The weekly chart is in bubble territory with overbought MOJO and the five-week MMA at $30.28 and the 200-week SMA at $23.62. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Monster Beverage ( MNST) ($58.42) set an all-time high at $83.96 on April 30 and is below its 200-day (SMA) at $61.79. The weekly chart shifts to positive on a close this week above its five-week MMA at $57.96 with the 200-week SMA at $33.27. This would be an attempt to reinflate the bubble. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Constellation Brands ( STZ) ($35.78) set an all-time high at $36.50 on Oct. 8 and is above its 200-day SMA at $25.05. The weekly chart is in bubble territory with overbought MOJO and the five-week MMA at $33.58 and the 200-week SMA at $18.97. I do not show a risky level at this time.

TJX Companies ( TJX) ($43.10) set an all-time high at $46.67 on Aug. 29 and is above its 200-day SMA at $40.90. The weekly chart stays negative on a close this week below the five-week MMA at $44.37 with the 200-week SMA at $25.42. A negative weekly chart is a sign of a bubble popping. Investors and traders should reduce positions on strength to my weekly pivot at $43.95 and then employ a "buy and trade" strategy between the value level and risky level.

Under Armour ( UA) ($58.08): I originally thought that the UA bubble popped in June/July when the stock declined from $53.93 to $44.07, but the MOJO returned to a higher all-time high at $60.96 on Sept 14. The stock is above its 200-day SMA at $49.03. The weekly chart is neutral but shifts to negative on a close this week below the five-week MMA at $56.40 with the 200-week SMA at $27.57. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Since I profiled Under Armour on June 26 in Retail Bubble Stocks Are Vulnerable the stock had a 2-for-1 split, and could have been bought at the weekly value level at a split-adjusted level of $47.90.

Wal-Mart Stores ( WMT) ($76.91) set an all-time high at $77.60 on Oct. 16 and is well above its 200-day SMA at $66.18 as this bubble continues to inflate. The weekly chart is in bubble territory with overbought MOJO and the five-week MMA at $74.62 and the 200-week SMA at $55.54. I do not show a risky level at this time.

At the time of publication, Suttmeier had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.